German government bonds rose for a third day as a report showed euro-area manufacturing growth slowed more than economists predicted this month, strengthening the case for more monetary stimulus.
Benchmark 10-year bund yields dropped below 1 percent for the first time in two weeks. Markit Economics said its purchasing managers index of manufacturing activity in the euro region dropped to 50.5 in September, the least since July 2013 and less than the 50.6 median estimate of analysts in a Bloomberg News survey. The bonds are extending gains from Monday, when European Central Bank President Mario Draghi said risks to the recovery are on the downside.
Germany’s 10-year yield fell two basis points, or 0.02 percentage point, to 0.99 percent at 9:16 a.m. London time after dropping to 0.987 percent, the lowest since Sept. 9. The 1 percent bund maturing August 2024 rose 0.165, or 1.65 euros per 1,000-euro ($1,286) face amount, to 100.07.
A PMI gauge of services dropped to 52.8 from 53.1 in August. The composite index declined to 52.3, the weakest since December, even as it stayed above the 50 level that signals expansion. Earlier, Markit released data showing manufacturing and services shrank in France, while in Germany factory growth slowed to the least in 15 months.
European bonds were boosted last week when the region’s banks asked for 83 billion euros in targeted ECB loans, almost half the 150 billion euros median estimate of analysts in a Bloomberg survey. That fueled speculation that stimulus announced so far will have to be supplemented with a quantitative-easing program to prevent the euro-area falling into a deflationary spiral.
Spanish bonds were little changed before an auction of three- and nine-month bills, with two-year notes yielding 0.32 percent. The rate on similar-maturity Italian debt was also little changed, at 0.35 percent.
Euro-area government securities returned 9.9 percent this year through Monday, Bloomberg World Bond Indexes show. Germany’s gained 6.8 percent and Spain’s earned 13 percent. [Bloomberg]